Nomura: Keppel’s appeal as a defensive stock is being tested

Singapore five-dollar note Photo by Leslie Shaffer

Keppel Corp.’s appeal as a defensive stock with offshore and marine “optionality” is under pressure, despite its solid track record and quality management, Nomura said in a note on Monday.

The main tests are coming from concerns that China’s gross domestic product (GDP) may slow further amid trade-war risks and as Singapore’s fresh property cooling measures are raising risks that new project launches will be delayed, it said.

“Slow China GDP growth will also inevitably create challenges for the group’s strategy of faster capital recycling – this has been key to shoring up profitability recently,” it said. “While we remain positive on O&M segment, we believe earnings ramp-up will likely be slow and prefer Sembcorp Marine for O&M exposure.”

Nomura cut its forecast for property sector earnings before interest and tax (EBIT) for 2018-19 by 4-6 percent on expectations of slower sales momentum in China. In the O&M segment, it added in recently announced new orders, but added that they would be partly offset by its assumption that Golar’s second FLNG order could be delayed further.

Nomura also pointed to the stock’s valuations, which were at a 2019 price-to-earnings ratio of 12.5 times, above the long-term average of 11.4 times.

It cut its target price to S$7.50 from S$8.70, keeping a Neutral call.

The stock ended Monday up 2.43 percent at S$6.74.

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